Historically, FIs, primarily comprising banks, have handled the transfer and presentment of items, often largely comprising checks, for payment in a manual, paper-based fashion. At specified times each day, "presenting" or "sending" FIs sort all checks presented to them from depositors and other correspondent FIs into bundles or "pockets," with the bundles containing checks for the particular FIs on which they are drawn ("payor" FIs). As the bundles of checks are sorted (or "pocketed") for particular payor FIs, they are segregated into batches of about 300 checks according to their American Banking Association ("ABA")-assigned routing/transit numbers ("R/Ts"). One or more of these batches are then aggregated for shipment to the payor FI. A detail listing of all checks within the batch and a cover letter (a "cash letter") are attached to each shipment of checks and summarize the contents of the batch. Such summary information comprises the name of the payor FI, the preassigned R/T associated with the name of the payor FI, the number of checks in the shipment and the total dollar amount of all of the checks in the batch. The presenting FI then transfers by means of physical transportation the cash letter and the bundles of checks to the payor FI.
When the payor FI receives the cash letter, it verifies that the contents of the cash letter, i.e., the check amounts, balance with the totals contained on the cover letter. After a check processing function and posting process, the payor FI determines whether the account on which each check is drawn is restricted in any way.
Accounts may be restricted for a variety of reasons. For instance, an account may be closed for cause, closed, dormant or new. The account holder may be deceased. The payor FI may order that no debits or transactions be posted or may order an officer restriction. There may be a lien on the account or the account holder may have placed a stop payment on file. Alternatively, the account may be restricted to a limited valid check number range or due to suspicious activity. In contrast with return of an item by reason of insufficient funds in an account, restrictions are placed on accounts regardless of the amount of any item presented.
Once the payor FI has determined that the account is not restricted, the payor FI determines whether enough money exists in the account on which the item is drawn to cover payment of the check (sufficient funds). Based on these determinations, the payor FI either accepts or rejects payment of the check, slating the check for return. The payor FI then notifies the presenting FI regarding any balancing discrepancies or any items that are to be returned. The return is accomplished by physical transportation of the returned check to the presenting FI that originally accepted the check.
A typical instance in which this paper-based presentment and routing process occurs is when, for example, an FI depositor receives a check from another party that is drawn on an FI other than the depositor's FI and the depositor presents the check to the depositor's own FI for payment, either in cash immediately or by crediting the depositor's account as a deposit. For the depositor's FI to collect on the check presented by the depositor, the depositor's FI (the presenting FI or "FI of first deposit") "presents" the check to the payor FI for deduction from the account of the drawer of the check. In this role, the presenting FI becomes the "presenting" FI. Once the payor FI receives and processes the check, it essentially pays the amount of the check to the presenting FI through a settlement process. In this role, the payor FI is legally referred to as the "payor" FI. Additionally, in terms of the delivery of items presented to the payor FI by a presenting FI for payment, the payor FI may be referred to as the "receiving" FI.
The procedure described above is an over-simplification of the process established for clearing checks between FIs. However, it is sufficient to demonstrate the problems associated with such a process. A first problem resulting from the above process is the delay between the time a check is first deposited at the presenting FI and the time the payor FI accepts or rejects the check. The presenting FI has the choice of either placing a hold on the depositor's FI account until it is notified of acceptance by the payor FI or it pays out the money to the presenting FI and incurs the risk that the check will be rejected by the payor FI as an unpaid check, perhaps because it is drawn on a restricted account.
Many FIs choose not to incur such a risk and therefore place a hold on the depositor's FI account until it is notified that the check has been accepted and paid, i.e., debited to the payor FI's account. However, the time that it takes for the presenting FI to be notified that a check has been accepted or rejected may take as long as 7 to 10 days. The Expedited Funds Availability Act of 1987, however, places limits on the length of time that an FI may retain a hold on a depositor's funds. In most cases, only two days are allowed for local items and only three days for non-local items. These time limits can severely expose an FI to risks of loss and fraud by forcing an FI accepting depositors' deposits to release funds to those depositors prior to verification that those funds are, in fact, collectable from the payor FI.
To overcome the problem of delay, FIs have attempted to automate the process of gathering checks into cash letters, sending and receiving cash letters and reconciling these cash letters against their contents. Such attempts at automation have included the installation of check sorter machines that scan checks at very high speeds and sort these checks into separate bundles associated with each payor FI. Conventional check processing methods employed by most U.S. FIs and other financial institutions now process checks and credits using high speed reader/sorter equipment such as IBM 3890's or Unisys DP1800's. The sorter "reads" information contained on the checks such as the R/T, the FI depositor's account number, the check serial number and the amount of the check. This information is contained in a line of symbols at the bottom of each check in Magnetic Ink Character Recognition ("MICR") form in a font called E13B. After reading and validation, the equipment transfers such information through data processing means to electronic data storage devices. Check sorter machines have been used quite successfully and are well known in the art.
Another attempt at automating the check process is the use of computer systems to record and manage the information associated with the check sorting procedure. Such computer systems interface with the check sorter machines and allow the computer systems to build database information associated with each check that is read. This allows an operator of a computer system to obtain information on checks that have been read such as the total number of checks drawn on specific FIs and the total dollars of all checks drawn on specific FIs. Such systems that accomplish this task are the IBM Check Processing Control System ("CPCS") and the Unisys Item Processing System ("IPS").
Although both of the above attempts have benefitted the industry, they have failed to address the problem of delays associated with both the transfer of cash letters between FIs and the notification of acceptance or non-payment of a check. Better transportation, overnight express and other services have helped to improve the physical transfer of cash letters, but the transfer of the information contained in the cash letters has still been dependent on the physical delivery of the cash letters to each of the payor FIs. Such dependence on the physical transfer of the cash letters perpetuates the delay associated with acceptance or non-payment of particular checks.
Ser. No. 08/236,632, filed on Apr. 29, 1994, entitled "Improved Electronic Check Presentment System Having a Non-ECP Exceptions Notification System Incorporated Therein," commonly assigned with the present invention and incorporated herein by reference is directed, in particular, to an improved electronic check processing system and data processing apparatus that incorporates a system for providing early electronic check return notifications arising from non-electronic check presentment exceptions. The system establishes an electronic version of the cash letter that precedes the paper version through the presentment process to the payor FI. If the payor FI "returns" an item, an electronic indication of that "return" is reflected back to the presenting FI, preferably prior to submission of the paper item to the paper-based presentment process. Thus, the system employs ECP to provide early warning to allow a presenting FI to avoid the subsequent paper-based presentment process and to institute defensive, preventive, remedial or corrective (together, "protective") action to prevent release of uncollected deposited funds to the depositor.
While the systems described above provide comprehensive "on-us" forward presentment processing capabilities to the ECP process, what is needed in the art is a corresponding transit component to provide a total ECP solution. More specifically, what is needed is a way of distributing the sorting process over more than one institution, allowing smaller presenting FIs to send their ECP work to a single receiver.